A Supreme Court ‘pass’ on intervening in the West Flagler Associates lawsuit against Florida’s Seminole Tribe “provides a blueprint for California and other states with tribal gaming.” That’s according to Deutsche Bank analyst Carlo Santarelli, who scrutinized the Seminoles’ victory in an investor note published today.
By opting not to hear the West Flagler appeal, the high court conceded “the notion that as long as the servers accepting the bets are on tribal facilities, online wagering falls within the compact,” Santarelli wrote. This could potentially enable them to cut out the private-sector middleman.
Santarelli explained that tribes in California could now basically amend their existing compacts with the state to permit sports betting, the Supreme Court having ceded the argument that “tribal lands” now include cyberspace. Thus they could “avoid a ballot initiative, which, despite being successful for the tribes in 2022, was costly.”
In that election, tribal interests were able to thwart commercial operators from opening up the Golden State to igaming and online sports betting. They were, however, unable to persuade voters to give them a green light for sports betting of their own.
“Much like Florida, however, should the tribes successfully amend the compact, the opportunity for the traditional online operators would remain cloudy,” wrote Santarelli. He remarked that conventional wisdom held that tribes would opt to partner with OSB giants but that this roseate outlook “lacks an understanding around tribal politics.”
The analyst called it “overly optimistic” to think that California’s manifold gaming-enabled tribes would simply pair off with private OSB operators. This is not only because such operators are vastly outnumbered by the scores of compacted California tribes but also because of tribal concerns with maintaining a balance of power, he explained.
“Moreover, given the sensitivity around the control of gaming in the state, we believe it is naïve to expect the tribes to turn over any element of gaming to outside entities, without a significant and ongoing financial return.” Santarelli reminded his readers that three Arkansas tribes cut out OSB powerhouses by turning their online operations over to business-to-business service providers that run the applications on the tribes’ behalf.
Santarelli cautioned that the Seminole compact was still not a done deal, with additional litigation certain to follow. However, given SCOTUS’ inaction, “a future with meaningful profit contributions from Florida, and perhaps other states with significant Tribal influence, appears less likely.”
Although he deemed the chances of any future overturning of the Seminole compact to be “slim,” the stock boffin warned that the Florida status quo was liable to remain in place for several years. Gaming stocks reacted positively to the SCOTUS non-verdict, prompting Santarelli to remark that “while we believe the ruling is a negative event for the online gaming operators, the market clearly disagreed.”
Why a negative? “Said simply, for the foreseeable future, the Seminole Tribe controls online sports betting in Florida, and could be launching icasino in Florida as soon as 2026.” Santarelli likened the Seminoles today to New York State, as far as outside operators were concerned. The tribe has exclusive igaming and OSB dominion over 16 million Floridians and profitability for third parties looks to be “negligible” in Deutsche Bank’s view.
“The ruling, in our view, hands the Seminole Tribe all the cards, and they can now proceed however they wish,” Santarelli continued.
He outlined three possible outcomes:
- The Seminole Tribe would opt to run OSB on their home-grown applications through 2051, per the terms of the compact with Gov. Ron DeSantis.
- The Seminole Tribe could contract with the operators with the best technology to act as providers and deal with them on a business-to-business basis rather than as digital surrogates.
- In return for a fee, the Seminole Tribe could enter a partnership with an OSB provider.
“We believe the latter point would essentially equate to the … New York model, where the fee/tax collected by the Tribe would make profitability very difficult, an element of the partnership road map that has obviously been evident to OSB operators for some time, as evidenced by the years of efforts to avoid this scenario,” Santarelli wrote.
